Good to GreatChapter 8

The Flywheel & the Doom LoopGroup 2

Mitchell StackHeather McMahon

Scott DevoreCory GregoryRyan White

Brittany ThomasonJacob Western

Revolution means turning the wheel. -Igor Stravinsky

Buildup and BreakthroughFlywheel image captures the overall feel of

what it was like inside the companies as they went from good to great.

Never happens in one fell swoop

Step by step, action by action, decision by decision

Turn by turn of the flywheel

All add up to sustained and spectacular results

Media’s influence on our perceptions

Often, the media doesn’t cover a company until the flywheel is already turning at a thousand rotations per minute.

Skews our perception of how the transformation happens

Portrays the transformation as some sort of an overnight metamorphosis

Circuit City – turning the flywheelAlan Wurtzel – CEO in 1973

Struggling with a crushing debt load

Implemented a warehouse showroom style

1982 – with 9 years of turning the flywheel

Within the next 5 years C.C. shifted entirely to this concept

Circuit City Cont.Generated highest total return to shareholders of

any company on the NYSE

Cumulative stock returns 22x better than the market (Intel, Wal-Mart, GE, Hewlett-Packard and Coca-Cola)

There were not any articles of significance in the decade leading up to the transition

After the transition there were 97 articles worth examining

22 with significant information

What is this Transformation called?The good to great companies had no name for

their transformations

No launch event, no tag line, no programmatic feel whatsoever

Some say that executives weren't even aware that a major transformation was under way until they were well into it.

Often more obvious to them after the fact than at the time

There is no miracle moment!It may look like a single-stroke breakthrough to those

viewing it from the outside

People on the inside see it as a deliberate process of figuring out what needs to be done to create the best future results

Then take those steps, one after the other, turn by turn of the flywheel.

Consistent pushing of the flywheel over an extended point of time

Inevitably you will hit a point of breakthrough

No Miracle MomentThere is no “Miracle Moment” in going from

a good company to a great companyThe top companies that made the jump from

good to great all agree that there was no miraculous jump to greatness

No Miracle MomentAbbott- “Our change was a major one and yet

in many aspects simply a series of incremental changes—this is what made our change successful”

Circuit City- “The transition to the superstore didn’t happen overnight…it took 10 years after we’d refined the concept and built enough momentum to bet our whole future on it”

Fannie Mae- “There was no magical event, no one turning point. It was more of an evolution”

No Miracle MomentGillette- “We didn’t really make a big

conscious decision or launch a big program or initiate a major change or transition”

Kimberly-Clark- “These things don’t happen overnight. They grow. The ideas grow and mushroom and come into being”

Kroger- “The major thing the Lyle did was to say that we’re going to change beginning now, on a deliberate basis”

No Miracle MomentAnother example of this is coach John

Wooden of the UCLA Bruins. He had a basketball dynasty from the 1960’s

to the 1970’s but it did not start that way.It took fifteen years for John Wooden to bring

in his first National Championship and from there went on to win ten in the next twelve years

Not Just A Luxury of CircumstanceGood-to-Great companies paid no attention to

long term constraints.Instead, they embraced those constraints

This also applies to the short-term pressures of Wall Street

The key is to harness they flywheel to manage these short-term pressures

“The good-to-great companies were subject to the same short-term pressures from Wall Street as the comparison companies. Yet,

unlike the comparison companies, they had the patience and discipline to follow the

buildup-breakthrough flywheel model despite these pressures. And, in the end, they attained extraordinary results by Wall

Street’s own measure of success.”

Blue Plans• Blue Plans- One method for managing short-term

pressures --- Abbot Labortories

• Each year, Abbot would tell analysts that it expected to grow 15%, for example. At the same time, it would set an internal goal of a much higher growth rate, say 25%– Meanwhile, it kept a ranked-ordered list of proposed

entrepreneurial projects that had not yet been funded, Blue Plans

– Abbot would then take the difference between the analysts growth rate and the actual growth rate and channel those funds into the Blue Plans

– This managed short term pressures while systematically investing in the future

Wall Street• Good-to-Great companies, such as Abbot,

effectively managed Wall Street during their buildup-breakthrough years

• These companies simply focused on accumulating results, often under promising and over delivering

• As the results began to accumulate – as the flywheel built momentum – the investing community came along with great enthusiasm

Flywheel EffectTremendous power exists in the fact of

continued improvement and the delivery of results. Point to tangible accomplishments.

When you do this in such a way that people see and feel the buildup of momentum, they will line up with enthusiasm. – This is the flywheel effect and it applies not only to outside investors but also to internal constituent groups.

Flywheel Effect

Flywheel EffectCollins found the question of alignment was not a

key challenge faced by good to great companies.“Clearly, the good to great companies did get

incredible commitment and alignment – they artfully managed change – but they never really spent much time thinking about it. It was utterly transparent to them. We learned that under the right conditions, the problems of commitment, alignment, motivation, and change just melt away. They largely take care of themselves.”

Flywheel EffectKroger

50,000 employeesHow do you get employees to embrace a

radical new strategy that will eventually change virtually every aspect of how the company builds and runs grocery stores?

The answer is – You Don’t. Not in one big event or program anyway.

Flywheel EffectKroger

Jim Herring, the level 5 leader who initiated the transformation of Kroger avoided any attempt at hoopla and motivation.

Instead Kroger began turning the flywheel, creating tangible evidence that their plans made sense.

Herring understood that the way to get people lined up behind a bold new vision is to turn the flywheel consistent with that vision – from two turns, to four, eight, sixteen – then say – See what we are doing and how well it is working? Extrapolate from that, and that’s where we’re going.

Flywheel Effect When people begin to feel the magic of

momentum – when they begin to see tangible results, when they can feel the flywheel beginning to build speed – that’s when the bulk of people line up to throw their shoulders against the wheel and push.

The Doom LoopInstead of a quiet & careful process of

figuring out what needed to be done and simply doing it…

Comparison Companies1. Frequently Launched New Programs 2. Made it a big deal to Motivate3. Programs failed to produce lasting results 4. Fell inside the doom loop

The Doom Loop Continued…

The Doom Loop Continued…For Example:

Warner-Lambert ( Comparison Company to Gillette) 1979 – Aimed to be a Consumer Products Company 1980 – Decided aim towards Health Care (went after

Merck) 1981 – Went back to Consumer Products 1987 – Once again went back to Health Care 1990 – Went back AGAIN to Consumer Products

The Doom Loop Continued…Warner Lambert Continued…

Went back and forth from 1979 to 1998 Each CEO tried to make a mark with him own

program Fired 20,000 people in search of a breakthrough They would get results, but slack off, and couldn’t

sustain the momentum of a breakthrough flywheel. Finally Stock Returns Flattened and they

disappeared as an independent company to Pfizer.

The Doom Loop Continued…Two common patterns of the Doom Loop

from company to company:1. The Misguided Use of Acquisitions2. Leaders Who Stop the Flywheel

The Misguided Use of Acquisitions

“When the going gets tough, we go shopping!” Pete Drucker observed that that the drive for

mergers and acquisitions comes less from sound reasoning and more from the fact that doing deals is a much more exciting way to spend your day than doing actual work.

The Misguided Use of AcquisitionsWhy did the good-to-great companies have a

substantially higher success rate with acquisitions, especially major acquisitions?The key to their success was that they used

acquisitions as an accelerator of flywheel momentum, not a creator of it.

In contrast, the comparison companies frequently tried to jump right to breakthrough via an acquisition or merger.

Leaders Who Stop the FlywheelThe other frequently observed doom loop

pattern is that of new leaders who stepped in, stopped an already spinning flywheel, and threw it in an entirely new direction.For example: In 1978, Joseph Boyd became the

new CEO of Harris Corporation. His first key decision was to move the company headquarters from Ohio to Florida. In the early 80’s he also decided to divest the their printing division (their primary and very successful division) and go headlong into the office automation business. By 1988 the company had fallen over 70% behind its competitors.

The Flywheel as a Wraparound Idea Each piece of the system reinforces the other parts. An integrated whole that is much more powerful than the sum of the

parts.

How to Tell if You're on the Flywheel or in the Doom LoopFlywheel Doom LoopFollow a pattern of buildup

leading to breakthrough.Reach breakthrough by an

accumulation of steps, one after the other, turn by turn of the flywheel; feels like an organic evolutionary process.

Confront the brutal facts to see clearly what steps must be taken to build momentum.

Attain consistency with clear Hedgehog Concept, resolutely staying within the three circles.

Skip buildup and jump right to breakthrough.

Implement big programs, radical change efforts, dramatic revolutions; chronic restructuring-always looking for a miracle moment or new savior.

Embrace fads and engage in management hoopla, rather than confront the brutal facts.

Demonstrate chronic inconsistency-lurching back and forth and out of the three circles.

Flywheel or Doom Loop cont’Flywheel Doom LoopFollow the pattern of disciplined

people (“first who”), disciplined thought, disciplined action.

Harness appropriate technologies to your Hedgehog Concept, to accelerate momentum.

Make major acquisitions after breakthrough (if at all)

Spend little energy trying to motivate or align people.

Let results do the most of the talking.

Maintain consistency over time.

Jump right to action, without disciplined though and without first getting the right people on the bus.

Run about like Chicken Little in reaction to technology.

Make major acquisitions before breakthrough.

Spend a lot of energy trying to align and motivate people.

Sell the future. Inconsistency over time.

How to StartLevel 5 Leaders

Getting the right people on the bus.

Completely understand the three circles of your Hedgehog Concept.

TakeawaysBuildup and Breakthrough

Not just a Luxury of Circumstance

Flywheel Effect

Doom Loop

What to Do and What to Avoid